China DRC deal puts World Bank under pressure

Scale of forthcoming funding from Beijing “defies belief”

  • By Jon Marks
  • 19 Oct 2007
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China’s $5.5 billion infrastructure-for-minerals deal for the Democratic Republic of Congo (DRC) heralds a strategic expansion by Beijing of financing to Africa – and poses a challenge to traditional lenders. The mining deal, announced this month and still being finalized, offers a lifeline to President Joseph Kabila’s cash-strapped government.

Although the World Bank and others have increased assistance to the DRC’s blighted economy since Kabila’s 2006 election victory, the Chinese package is far larger than all western aid combined over the next few years.

And a range of sources in Kinshasa told Emerging Markets there was more to come from Beijing. It is suggested that $19 billion of medium-term investment could be on the way, involving several packages similar to the mining deal – all secured by natural resources.

A well-connected western diplomat said: “The Chinese are very discrete, but they are sharing some information with us. We have been told this only the first of a number of deals. The scale defies belief.” So far, Chinese resource-backed deals in Africa have been led by the Export-Import Bank of China (China Eximbank). Now the mighty China Development Bank (CDB) is joining in: it last week signed a cooperation agreement with the Public Works Ministry in Kinshasa.

A DRC government move to re-examine natural resources contracts may also be a welcome signal to China. western mining companies told Emerging Markets that they are concerned that the inspection could be a prelude to their expulsion from choice concessions, to leverage the Chinese in. Congolese officials complain that OECD countries have not been generous enough, given the DRC’s huge development needs. More than 80% of the population live on less than $1 per day, and minerals are flown out of Katanga and other landlocked producing areas because the road and rail network has collapsed.

Roger Bossise Kataala, director of infrastructure at the Ministry of Infrastructure and Public Works – a key player in the Chinese deals – said: “When a country comes out of war it needs a Marshall plan, as Germany did and South Korea did. But this hasn’t really happened here. We’ve opened up to all partners but it’s only the Chinese who have really responded.” The $5.5 billion deal announced this month involves the China Eximbank and malfunctioning parastatal mining company, Gecamines.

Mines minister Martin Kabwelulu Labilo told Emerging Markets: “It is an inter-Chinese deal in that [China Eximbank] will provide credits, half to go to the mines development and half to the Ministry of Public Works to finance projects. “The mines will be developed by joint ventures, and the dividend from those new companies will finance the public works. ... This can work for others too. We’ve only started with the Chinese.” Labilo insisted that the deal with Gecamines involved only “non-attributed deposits”, i.e. it would not affect western companies’ projects.

  • By Jon Marks
  • 19 Oct 2007

All International Bonds

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4 Barclays 75,288.19 241 6.66%
5 Goldman Sachs 68,504.71 208 6.06%

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5 SG Corporate & Investment Banking 8,885.00 54 4.04%

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5 Bank of America Merrill Lynch 6,215.31 24 5.96%